Marcelo José Lomba Valença*

Thiago Ferreira Magalhães*

Since 1971, a law has existed that restricts the acquisition of rural properties by foreigners. Any foreigner who is a private individual with a tourist visa and who wants to buy a rural property in Brazil, even if such foreigner is enrolled at the Brazilian Tax Payers' Registry for Private Individuals (CPF), is subject to restrictions related to (a) the size of the property, which cannot exceed fifty rural modules; (b) rural subdivisions, whereby the percentage of plots belonging to foreigners cannot exceed 30%; (c) properties in areas of national security, where the approval of the federal agency that has authority over national security is required; (d) what fraction of the surface of a municipality foreigners are entitled to own: no more than ¼; and (e) the forbidding of any donations of Federal or State land .

These restrictions do not apply only to foreigners who are private individuals, but also to foreign legal entities (companies created and existing according to the laws of foreign countries) and to Brazilian companies created and existing according to Brazilian laws but controlled by foreigners.

The controversy lies precisely in this latter category. The Brazilian Federal Constitution, effective since 1988, established in section 171 that there existed Brazilian companies and Brazilian companies with Brazilian capital. The Brazilian companies were those that had their head and administrative offices in Brazil, but that could have a foreign interest in their capital, and the Brazilian companies with Brazilian capital were those the effective and permanent control of which was held by private individuals domiciled and resident in Brazil or companies controlled by the Brazilian government.

In 1995, Constitutional Amendment nº 6 was approved, which ended the distinction between Brazilian companies and Brazilian companies with Brazilian capital, with the revocation of section 171. From that moment on, all companies whose head and administrative offices were in Brazil were considered Brazilian companies, regardless of who had an interest in their share capital.

From then on, it was understood that the restrictions that had existed since 1971 regarding the acquisition of rural property by a legal entity controlled by foreigners were no longer applicable because the Federal Constitution, as amended by Constitutional Amendment n° 6, no longer distinguished between companies with head and administrative offices in Brazil subject to control by Brazilians and companies with head and administrative offices in Brazil subject to control by foreigners.

The restrictions upon the acquisition of rural properties by companies with head and administrative offices in Brazil and subject to control by foreigners ceased to prevail between 1998 and August 2010, until an Opinion issued by the Controller General's Office, in connection with Opinion nº 01/2008-RVJ issued by the Federal Attorney's Office ("Opinion FAO/2008"), was approved by the president of the Brazilian Republic and published in the official Federal Gazette. According to Opinion FAO/2008, notwithstanding the revocation of section 171 of the Federal Constitution by Constitutional Amendment nº 6, which ended the distinction between companies with head and administrative offices in Brazil, such distinction does in fact persist, in section 172 of the Federal Constitution, where it is determined that "based on national interests, the law shall govern foreign capital investments, shall encourage reinvestment and shall regulate the remittance of profits".

Accordingly, when reading the 1971 restrictions regarding the acquisition of rural properties by companies with head and administrative offices in Brazil subject to control by foreigners, such restrictions could be interpreted, in light of the 1988 Federal Constitution, as the law governing foreign capital investments, as provided in section 172.

Furthermore, it is important to point out that the Federal Constitution of 1988, in section 190, determines that "the law shall regulate and limit the acquisition or leasing of rural properties by foreign private individuals or legal entities." For the purposes of the Federal Constitution, such legal entities are companies created and existing under the laws of other countries.

Accordingly, regardless of the revocation of the distinction between Brazilian company and Brazilian company with Brazilian capital, it is the understanding of the Controller General's Office that the Brazilian authorities have the right to govern investments of foreign capital and, as such, the restrictions of 1971 are valid and effective.

All these discussions, eminently legal in nature, are not an end in themselves. Behind all of this are reasons for the imposition of the restrictions concerning the acquisition of rural property by foreigners, be such foreigners private individuals, legal entities or Brazilian companies controlled by foreigners. The official reasons of Opinion FAO/2008 are as follows:

(a) the expansion of agricultural frontiers with the advance of crops into environmentally protected areas and conservation units;

(b) the unjustifiable appreciation of the price of land and real estate speculation generating a rise in the cost of the expropriation process for the purposes of agrarian reform as well as a reduction in the supply of public land for this purpose;

(c) the increase in the illegal sale of public land;

(d) the application of resources from money laundering, drug trafficking and prostitution in the acquisition of land;

(e) an increase in land grabbing;

(f) the proliferation of front-men in the acquisition of land;

(g) an increase the biopiracy statistics relative to the Amazon Region;

(h) the increase in the un-regulated production of ethanol and biodiesel; and

(i) the acquisition of land along the borders of the country, thereby putting national security at risk.

The expansion of agricultural frontiers into environmentally protected areas, the illegal increase in the sale of public lands, the laundering of money, the trafficking of drugs, prostitution and land grabbing are matters for the police. What the Brazilian authorities have to do in regard to these problems is to invest in education, technology and intelligence in such a way as to make people aware of these problems and to combat such illicit activities. This, because Brazilians are just as predisposed to commit these illicit acts as are foreigners.

As concerns the unjustifiable appreciation of the price of land and its impact on the cost of agrarian reform, the more restricted the market in rural lands becomes, the more arbitrary its pricing will be and, consequently, the more attractive it will become for the laundering of money. In the matter of agrarian reform, we live in a world with 7 billion potential starving people and Brazil has a great advantage, namely the capacity to generate agricultural products to feed a substantial part of these people. This potential will not be maximized with the family-oriented agriculture that the agrarian reform intends. In fact, there are many beneficiaries of the agrarian reform that lease the lands that were granted them by the agrarian reform for agricultural production or large-scale extraction of forest commodities. All capital that is directed at maximizing the yield of Brazilian lands, be such capital Brazilian or foreign, should be welcomed and such investments should be encouraged so that Brazil may maintain its exports of primary products at high levels. The same applies to ethanol and biodiesel. Those same potential 7 billion starving people are also potential consumers of renewable energies.

The proliferation of front men. Frankly, this only makes sense if we interpret such a concern exclusively in terms of the illegal sale of public land, which - as was mentioned earlier - is a problem for the police.

On the question of biopiracy, regardless of whether the owner of the land is Brazilian or foreign, the pirated species, by necessity, have to cross the border in order to leave the country. And, if even Osama Bin Laden can cross borders unnoticed, imagine a seed or a small plant. Border control is the way to combat biopiracy.

And, finally, the most prosaic of all arguments to justify the restrictions upon the acquisition of rural properties by foreigners: a risk to national security by reason of foreigners being owners of lands on the borders. It is impossible to imagine in today's world enemy troops lining up to enter Brazilian territory and billeting themselves in a property belonging to a citizen of the invading country on the border. If this were to happen, the defense of the country would be much easier, because all that would be required would be to concentrate troops in surrounding the foreign-owned rural property where the enemy troops were billeted.

The conjectural justifications in defense of the restrictions upon foreign investment in the acquisition of rural properties do not make the slightest bit of sense in today's world. Imagine how many lives would have been spared if, instead of the allies disembarking on to a number of Normandy beaches on D-Day, the British or Americans had bought a property with frontage to the English Channel and from there had disembarked all the contingents necessary to beat the Germans.

If there is any restriction that does make sense, it is the alimentary security of the country; however, this is resolved with export tariffs. It is time for Brazil to assume a position in the world commensurate with its greatness and its natural riches. At this juncture, to restrict or to limit any kind of foreign investment that results in the increase of the productive capacity of the country is to row against the tide of the future that awaits the Brazilian people.

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Marcelo José Lomba Valença and Thiago Ferreira Magalhães are partner and senior lawyers at Almeida Bugelli e Valença Advogados Associados.